Crime Pays for the IRS

crime paysCrime Pays for the IRS. When Gary Kaplan was arrested, he was facing 75-100 years in jail and a criminal forfeiture of $180 million. Two years later, he cut a deal with the federal government to plead guilty, and as part of the plea agreement, he would serve 41-51 months in prison and forfeit $44 million. The plea guaranteed that no further charges could be brought against Mr. Kaplan. Gary Kaplan thought that was the end of the story. Unfortunately for him, the story was just beginning for the IRS.

Gary Kaplan is the founder of offshore online gambling giant BetonSports. His company generated revenue into the billions in the early 2000’s. BetonSports operated out of Costa Rica and employed 1,700 people. By the end of January 2004, they had over 1 million customers. In March 2007, the federal net came down on Gary Kaplan. He was arrested in the Dominican Republic and charged with illegal bookmaking, racketeering, mail fraud, and using wire communications to transmit a wager.

Not very long after Gary Kaplan’s conviction, the IRS realized Kaplan failed to file tax returns for 2004 and 2005. The IRS assessed over $24 million in tax related to the unreported capital gain from the sale of BetonSports stock. The IRS also assessed another $12 million in penalties.

Faced with another $36 million bill from the U.S. government, Gary Kaplan cried foul. He had already agreed to forfeit $44 million dollars to the federal government, and serve 51 months in prison. In fact, he paid the original $44 million and completed his sentence in 2011.

He filed a petition for relief of his $36 million tax liability with the United States Tax Court, arguing that it was double jeopardy or preclusion by judicial estoppel. He argued that no further charges could be brought against him. Mr. Kaplan’s tax court petition reveals the shadowy and lucrative world of offshore sports betting. Apparently crime does pay. But as taxpayer Gary Kaplan would find out, crime pays for the IRS. Gary Kaplan had anywhere from $75 million to $160 million in taxable income for the tax years 2004 and 2005. That is taxable income. That is not gross income. That is what is left after all the deductions and loopholes.

The tax court decision came was released Thursday. The United States Tax Court ruled against Gary Kaplan. The court ruled against Mr. Kaplan’s argument of preclusion by judicial estoppel. The court pointed out that Mr. Kaplan’s plea agreement stated the following: “Nothing contained in this document is meant to limit the rights and authority of the United States of America to take any civil, civil tax, or administrative action against the taxpayer.” It clearly states civil tax. The court also reviewed the original trial transcripts from Mr. Kaplan’s sentencing hearing. The sentencing judge clearly, and unequivocally asked Mr. Kaplan if he knew the difference between criminal and  civil tax proceedings. Mr. Kaplan replied that he understood the difference.

Case closed. Chalk one up for the IRS. Crime pays for the IRS. Or at least crime pays in this case. According to gambling news Website CalvinAyre.com, Gary Kaplan’s whereabouts are currently unknown.

By  John J. Poltonowicz

Sources:

Forbes
Gambling911
United States Tax Court

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